Shopping Around for a Mortgage Could Help Borrowers Save More Than $84,000 Over Their Loans’ Lifetime
Though today’s relatively high mortgage rates have made homebuying considerably more expensive than during the height of the pandemic, shopping around for a mortgage and comparing offers from lenders could help borrowers save a significant amount of money.
To show how much money those who shop around could save, LendingTree analyzed data from users of our online shopping platform who received three or more offers from mortgage lenders. With this data, we calculated how much borrowers in each of the nation’s 50 largest metropolitan areas could save if they chose the lowest APR offered instead of the highest.
In doing so, we found that shopping around for a mortgage could help borrowers across the nation’s largest metros save an average of $84,301 over the lifetime of their loans.
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Key findings
- Borrowers in the nation’s 50 largest metros could save an average of $84,301 over the lifetime of their loans by shopping around for a mortgage. This breaks down to an average savings of $2,810 a year and $234 a month.
- San Jose, Calif., San Francisco and Los Angeles are the metros where borrowers could save the most over the lifetime of their mortgages. Across these three metros, borrowers could save an average of $149,146 over the lifetime of their loans by shopping around.
- Across the nation’s 50 largest metros, the average spread between the highest and lowest APR offered to borrowers is 99 basis points. Getting offered a loan with a rate 0.99 percentage points lower than another might not seem like a big deal, but it could help you save tens of thousands of dollars (or more) over the lifetime of your loan. When talking about loans typically worth hundreds of thousands of dollars, getting an APR that’s even 10 basis points lower than another could make a notable difference in how much a mortgage costs over its lifetime.
- Minneapolis, Milwaukee and Columbus, Ohio, borrowers see the largest spreads between the average lowest and highest APRs offered. In these metros, the average spread is 117 basis points — 18 above the 50-metro average. Despite having the biggest spreads, these metros don’t boast the highest lifetime loan savings as borrowers there have substantially lower average mortgage amounts than in places like San Jose or San Francisco.
- The more offers a borrower can get, the more they’re likely to save. Nationwide, borrowers who only receive two offers could save an average of $35,377 over the lifetime of their loans, while borrowers who get more than five offers could save an average of $105,912 — or an additional $70,535. These larger savings are possible because borrowers who receive more offers tend to have higher credit scores that allow them access to lower minimum APRs and take out bigger mortgages.
Metros where borrowers could save the most by shopping around for a mortgage
No. 1: San Jose, Calif.
- Average lowest offered APR: 6.49%
- Average highest offered APR: 7.40%
- Spread between average highest and average lowest APR: 0.91 percentage points
- Lifetime savings: $157,758
No. 2: San Francisco
- Average lowest offered APR: 6.49%
- Average highest offered APR: 7.43%
- Spread between average highest and average lowest APR: 0.94 percentage points
- Lifetime savings: $151,371
No. 3: Los Angeles
- Average lowest offered APR: 6.52%
- Average highest offered APR: 7.50%
- Spread between average highest and average lowest APR: 0.98 percentage points
- Lifetime savings: $138,309
No. 4: San Diego
- Average lowest offered APR: 6.53%
- Average highest offered APR: 7.51%
- Spread between average highest and average lowest APR: 0.98 percentage points
- Lifetime savings: $130,900
No. 5: Seattle
- Average lowest offered APR: 6.59%
- Average highest offered APR: 7.55%
- Spread between average highest and average lowest APR: 0.96 percentage points
- Lifetime savings: $119,458
No. 6: Boston
- Average lowest offered APR: 6.62%
- Average highest offered APR: 7.64%
- Spread between average highest and average lowest APR: 1.02 percentage points
- Lifetime savings: $115,065
No. 7: Washington, D.C.
- Average lowest offered APR: 6.63%
- Average highest offered APR: 7.64%
- Spread between average highest and average lowest APR: 1.01 percentage points
- Lifetime savings: $113,321
No. 8: Denver
- Average lowest offered APR: 6.58%
- Average highest offered APR: 7.56%
- Spread between average highest and average lowest APR: 0.98 percentage points
- Lifetime savings: $102,944
No. 9: Riverside, Calif.
- Average lowest offered APR: 6.66%
- Average highest offered APR: 7.69%
- Spread between average highest and average lowest APR: 1.03 percentage points
- Lifetime savings: $101,439
No. 10: Sacramento, Calif.
- Average lowest offered APR: 6.62%
- Average highest offered APR: 7.61%
- Spread between average highest and average lowest APR: 0.99 percentage points
- Lifetime savings: $99,212
Why can shopping around result in such serious savings?
Differences in the rates offered by lenders are especially important for borrowers, since getting a lower rate could result in hundreds of dollars in savings a month and tens of thousands of dollars in savings over the lifetime of loans.
But why can lenders offer such different rates to the same people? The reason is largely related to risk.
But just because lenders tend to look at the same general criteria when calculating risk doesn’t mean they necessarily calculate risk the same way. Nor does it mean they all have the same mortgage requirements borrowers will need to meet before getting approved. Because of this, some lenders may feel more or less inclined to work with a potential borrower because of factors outside that person’s control. For this reason, lenders might offer notably different rates to the same person.
Tips for getting a lower rate on your mortgage
Besides shopping around for a lender, here are three additional tips that could help borrowers get lower rates on their mortgages:
- Boost your credit score. Your credit score score can make a big difference in the rate a lender offers you, so you’ll want to do everything you can to improve your score before applying for a mortgage. While you don’t need perfect credit before applying, a higher score could help you save tens of thousands of dollars over the lifetime of your loan.
- Think about buying mortgage points. When you get approved for a loan, some lenders may give you the option to buy mortgage points (also known as discount points). Essentially, buying these points allows you to prepay interest on your loan and get access to a lower rate as a result. If you’ve got extra cash and are planning on staying in your home for a while, they can be a great option.
- Consider a shorter loan term. Though they typically have higher monthly payments, shorter-term loans tend to come with considerably lower rates than longer-term ones. This means that for those who can afford them, getting a shorter-term loan — like a 15-year mortgage — could help borrowers save a significant amount of money in interest over the lifetime of their loans.
Methodology
Metropolitan-level data in this study is from 215,351 users of the LendingTree online shopping platform who received three or more offers for 30-year, fixed-rate mortgages from lenders from Jan. 1 through July 24, 2023.
Specifically, we looked at the lowest and highest APRs offered to individual users in each of the nation’s 50 largest metropolitan statistical areas. With that data, we calculated the average lowest and the average highest APR offered to users who received three or more offers (see below for examples).
With these unrounded average APRs, we calculated the monthly payment for a borrower if they received the average mortgage amount in their area with the lowest average APR and the highest average APR. The difference between these two payments is the borrower’s potential monthly savings. We multiplied these monthly savings by 12 and 360 to find the annual and lifetime savings.
It’s important to reiterate that we didn’t compare the single lowest and single highest APRs offered to users in a given metro when calculating the potential monthly payments. Instead, we compared an average of the lowest and average of the highest APRs offered to individual users.
For example, consider a metro with three hypothetical users who each received three offers from lenders on the LendingTree platform. The following table breaks down what they were offered:
| User | Offered APR from Lender 1 | Offered APR from Lender 2 | Offered APR from Lender 3 |
|---|---|---|---|
| User 1 | 7.22% | 6.99% | 6.33% |
| User 2 | 7.44% | 6.90% | 7.23% |
| User 3 | 6.95% | 7.10% | 6.97% |
For this study, LendingTree wouldn’t calculate the difference in mortgage payments for a loan with a rate of 6.33% (the lowest rate offered) and a rate of 7.44% (the highest). Instead, we would calculate the difference based on an average of the lowest rates offered to each user (6.33%, 6.90% and 6.95%) and the average of the highest rates offered to each user (7.22%, 7.44% and 7.10%). In this case, those averages would be 6.73% and 7.25%.